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connected to the family lawsuit. The letter characterized the
family lawsuit plaintiffs as “dissident and hostile minority”
shareholders and asserted that they “cannot function as part of a
unified team”. The letter indicated that petitioner planned to
redeem the shares of those shareholders “to promote harmony in
the business”. The letter was accompanied by the probate court’s
order rescinding the 1961 transfer. The letter was accompanied
by a few cases that petitioner asserted supported the
permissibility of its earnings accumulation.
Petitioner asserts in brief that it also accumulated
earnings during the subject years for reasons other than a stock
redemption. Neither petitioner’s December 16, 1996, letter nor
its pleadings in this case set forth any reason for the earnings
accumulation other than a stock redemption. Nor did petitioner’s
authorized representative state any other reason when, during
petitioner’s audit, he responded to the IDR. In fact, the first
time that petitioner asserted that it was also accumulating
earnings to meet certain business contingencies and to provide
working capital was at or about the time of trial. Such an after
the fact rationalization to support the accumulation of earnings
is unavailing.17
17 We also find unavailing petitioner’s assertion in brief
that it was unable to declare dividends during the subject years
by virtue of the fact that the family lawsuit placed in doubt the
true identity of its shareholders. The mere fact that the
identity of some of the shareholders was being disputed during
the subject years does not, to our minds, mean that petitioner
was prevented from declaring a dividend.
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